Supply and Demand on a Full Planet - ASPO VI Speech by Nate Hagens

Posted by Prof. Goose on August 26, 2008 - 10:30am

Next month is the ASPO conference in Sacramento CA. Nate Hagens will be one of the speakers in the plenary (as well as on the Sunday TOD breakout panels). Here is a video of the talk he gave last year at the international ASPO VI venue in Cork Ireland. The speech covered net energy, energy properties and externalities on the supply side and addiction, relative fitness and steep discount rates from an evolutionary perspective on the demand side. Here is a link to the slides themselves, (which aren't fully shown at times on the video).

Nate, I am embarrassed to say that's the first time I have watched you give that talk. As you know, I couldn't make it (or was advised not to go) because I was still in the oil industry. But after being contacted by one of the directors for ASPO-Ireland on suggestions for a speaker, I gave them your name. Thanks for making me look smart. :-)

thanks RR.
There were a couple of mistakes - you know when your tongue moves faster than your brain. Lottery winners have significantly higher suicide rates than non-lottery winners but its not 10 times. Also, I skipped a whole 2 minute part on sexual selection and mate choice in humans. Thats what happens when I tried to condense a 1 hour talk in 30 minutes with Jeremy Legget timing me...following that talk there was also a Q&A panel discussion (Panel 3 - about 3/4 down).
see you in CA. (was the last time I saw you in Montana with Jay Hanson at the 'ranch'??)

Sorry Nate, you seem like a really a good guy, so I'm really sorry to say this, but your view of cognition is so biased by western economic philosophy it is quite frustrating to listen to you.

There are so many objections I have, I can't even begin to address them. Here are just a few points.

1) There are other "big picture" views of cognition in which emotional parts of the brain regulate the "cognitive" parts of the brain in a more symbiotic relationship rather than the "either, or" scenario you present.

2) Normally functioning humans are quite capable of regulating (for example) their food intake. Breakdowns in that regulatory process are a) NOT the norm (morbidly obese Americans are still a minority) b) often traceable to other emotional issues.

3) You sneak in many evolutionary "just so" stories. One struck me for the pure inconsistency of your arguments: You said: Homo sapiens sapiens evolved in a time of scarcity (I'm roughly paraphrasing you here) and then proceed to basically say that we're unable to plan for the future. Well, how did our ancestors survive? In my evolutionary "just so" story, they survived by planning for the future in times of scarcity. Just because Americans are unable to plan for the future does not mean that humans as a whole are unable to plan for the future. Consider the possibility that this phenomenon is driven by social cognition, rather than anything inherent in the human brain.

4) Reasoning biases are NOT proof of anything. a) Reasoning biases are not robust and highly representation dependent. IIRC there was a study recently published (I'm talking last 20 years) in which people were asked to make probability judgments based on provided percentages (in one condition) and based on set representations e.g., one in ten people blah blah blah (in the other condition). Subjects in the "set" condition did just fine. Reasoning biases are just as likely a subset of a much broader phenomenon related to specificity effects and corresponding "failure to transfer," which have absolutely nothing to do with our reptilian brain and have everything to do with cognitive efficiency, nothing more.

5) There is no conclusive evidence of "selfishness" or a "selfish gene" that drives the bizarre, twisted logic of economics, and from which most of your reasoning about cognition seems to derive.

I suspect that it might take more than "a little reading" to catch up on all that is known or that is reliably conjectured about human cognition. And it seems if we want to explain how people respond (or not) to PO we would have to invoke the behaviors of social groups and the influence of culture, politics, and emotion rather than about how brains work. How brains work is important to understanding individuals, but the problem with our inability to do anything about PO is primarily cultural and social in origin. And groups of people behave very differently than individuals, as evidenced by:

"the bizarre, twisted logic of economics"

I, too, have trouble thinking about the modern "morality" of business and its apologist, economics.

At any rate, I would guess that some of the conclusions that can be made about "our inability to plan" may involve stories about our culture more than about our fundamental properties as humans. But perhaps the actual origin of the behavior doesn't matter after all, because the culture I'm living in really doesn't seem at all interested in planning for the future. Unless something changes really soon, the reason for our not changing until it's too late is going to be of no practical interest.

We would have to invoke the behaviors of social groups and the influence of culture, politics, and emotion rather than about how brains work

Science Ed Guy,

With due respect, I submit that this argument is wrong headed.

The human brain is composed of many cognating centers rather than just one. To think of it as a massively parallel computing machine would be wrong because the brain is not "intelligently designed". However, modeling the brain as a MIMD machine might be a good first, although crude step.

The different parts of the brain argue with each other just like people in our society argue and have conflicts. Have you ever been of two minds about a certain topic? If yes, how could that be? Don't argue with yourself too much about it.

The human brain has emotion driven centers (i.e. the limbic layer) and this is why "emotional" arguments work in our society. You cannot separate how the individual brain works from how and why our societies function as they do.

The battle outside starts with the battle within.

____________________________
We are not who we think we are. That's just a false although convenient model.

Are you a social scientist? There is only so much I can fit into 30 minutes. I never said our brains were 'either or' only that different systems were built on top of others -clearly there is interplay. I would recommend this piece on habituation and addiction a version of which is pending peer review in Journal of Behavioral Ecology, coauthored with some of the referenced authors.

I have had a very difficult time communicating these ideas to social scientists. I understand the problem with 'just-so' stories, but the science of mirror-neurons being the origin of culture, relative fitness being drivers of competition, and conspicuous consumption being driver of our behaviour are not my original ideas. I've just ordered a new book by Geoffrey Miller, "Faking fitness: The evolutionary origins of consumer behavior". The brain sciences (NOT social psychology) are all over these concepts - they just don't understand thermodynamics and oil depletion yet. My girlfriend suggested instead of speaking about neuroscience at an oil conference that maybe you should speak about oil at a neuroscience conference...;-)

So forgetting everything you said and I said, do you think telling people the 'general' facts about peak oil is enough to effect change?

Nate, think yourself lucky you didn't choose to make a speciality of studying human behaviour (as I did myself) else you'd have had to confront this sort of ideological trash-throwing at the heart of your life-trajectory rather than on the periphery. Regarding there not being a gene for selfishness, it should be evident to the neutral observer that we have innate tendencies towards both selfishness and helpfulness, which conflict, and the resolution of that conflict has to be constantly reworked (as is the subject of so many literary works etc).

So forgetting everything you said and I said, do you think telling people the 'general' facts about peak oil is enough to effect change?

Both of us know that telling people the facts will change almost nobody. However, this phenomenon (people refusing to believe the evidence in front of them) has nothing to do with the subject matter and nothing to do with humans' supposed inability to plan for the future. Let me quote from a paper by Herbert Lin (1983). This is a college physics student describing his/her process of learning physics:

...the things I see in physics are completely different than what I would normally expect them to be... Even though I've seen it in lab, I say "OK, I'm just going to pretend it's true," and I work the problems like that...

Tell me, what does physics have to do with planning for the future? Do you see my point? Our tendency to ignore the evidence spans all human endeavor when that evidence requires us to change our belief systems. Obviously I'd put Thomas Kuhn at this point on my recommended reading list. And most importantly, belief systems are socially constructed and mediated, not "cognitive" in the "in the brain" sense of cognition. They are "in the world" cognition if you like. That is why I would argue that communicating peak oil successfully is a framing issue (see Deborah Tannen, and more recently, George Lakoff for further reading on the topic of frames).

So forgetting everything you said and I said, do you think telling people the 'general' facts about peak oil is enough to effect change?

How we (actually how "they") Model our Models

Nate,
It's not simply about discounting the future,
it's also about discounting models of the far off future.

To give you an example, if a climatologist told us that based on his models, a hurricane is coming tomorrow, we would tend to give that warning serious weight.

On the other hand, if a climatologist told us that based on his models, a hurricane is coming two weeks from now on Thursday at 5:00 PM, we would tend to give that far into the future warning very little weight because we know out of experience that models of the far off future tend to be wrong.

The same cognitive phenomenon applies to Hubbert's curves except that "we" on the TOD board do not view a Hubbert's model the same as does a member of the general population. To "them" it's just another easily discountable model of the far off future. To us, it is a well studied and thus very close to the heart model of what scientifically must unfold even if the timing is a bit off.

So the cognition problem is not just that of discounting the future.
It's also about discounting models of the future.

dtbks: - I agree with you on this. In my experience the greatest intellectual defect of the human race is inability to unthink an already existing viewpoint. But bear in mind that some people are a bit better at it than others. Individual differences are substantial and important.

But in confidence-shattering times of crisis, when belief systems start to break down, more people at last (too late) can do this unthinking. And yet still many will just not make it and die of brain-strain.

Ah excellent - Kuhn at last! There is also another less heard about chap called Jaques Ellul, (The Technological Society. Trans. John Wilkinson. New York: Knopf, 1964. etc) who wrote about humankind's fascination with technology - ways of doing as ways of being - I paraphrase him here, but I think you get the point. Also Zigmunt Bauman's 'Modernity and the Holocaust' also points out the dangers inherent in the ability of technology to distance humans from the reality/consequences of their actions. This ties in with Milgrams 'Perils of obedience' experiment. I agree that cognition comes into the equation, if only to become cognizant of how embedded in 'some-thing' or 'some-reality' one already is...

Also the focus on the brain is a very western bias (from Descartes et al), whereas eastern philosophy put the centre of cognition as the heart, and more recent scientific research has begun to give credence to this: "In essence, it appeared that the heart was affecting intelligence and awareness."(From: http://www.heartmath.org/index.php?option=com_content&task=view&id=28&It...)

We need many many more people who do exactly that! BTW, Nate, have you ever heard of Lambros Malafouris? I think if he is anywhere close to being right we may find the consequences of Peak Oil to be many orders of magnitude more viscerally debilitating than any of us would care to imagine.
Somewhat akin to losing many of our extended senses while at the same time having our artificial limbs torn from their stumps. Not to mention that since it was futile to resist and we were assimilated into the borg we are now on the verge of all being tossed out of the garden of eden to fend for ourselves by the sweat of our brows. Not a happy thought for most people. So I think I can understand while so many people want to continue to try to find solutions for maintaining BAU at any cost.

The mainstream approach to cognition holds that it happens in the mind and that material culture is nothing more than an outgrowth of our mental capacities. Archaeologist Lambros Malafouris is challenging this deep-seated idea with a radical new notion: the hypothesis of extended mind, which posits that material culture is not a reflection of the human mind but an actual part of it. Take, for instance, a blind man's stick. "Where does the blind man end and the rest of the world begin?" he says. "You might see the stick as something external, but it plays a very important role in the perceptual system of this person. It extends the boundaries of this human—the stick becomes an integral part of the cognitive architecture."

If material culture is an extension of human cognition, our engagement with it has actively shaped the evolution of human intelligence, Malafouris argues. For example, ancient clay tablets that allowed people to actually write down records were not mere objects, he says. Instead, they became integral adjuncts of the human memory system. The invention of such a technology "changes the structure of the human mind," says Malafouris, a post-doctoral fellow at the University of Cambridge.

Wow. What an absolutely horrid criticism. Worry not, Nate and let this one slide off your back.

dtbks is talking about "cognition" as the squishy unmeasurable consciousness/meme of the day...it's anti-empirical and especially anti-psych. In short, it's constructivist crap.

Say what you mean, sir and stop hiding behind pretense--what you mean to say is that psychology and evolutionary biology, and science writ large, is a dysfunctional base of knowledge that does not deserve to be listened to.

From the dripping condescention of your post, "dtbks", it seems you consider yourself wise indeed in these matters. One is at something of a loss, then, at the light weight of your comments themselves.

There are so many objections I have, I can't even begin to address them.

Evidently.

There are other "big picture" views of cognition

Many of which are flat-out delusional. Which is your favorite? You don't seem to have clarified it other than to note that it's symbiotic, and that's not exactly a deep insight, particularly in the way you offer it. Of course the functions of the brain have evolved to be symbiotic, and Nate did not - to my ear - imply otherwise.

Normally functioning humans are quite capable of regulating (for example) their food intake. Breakdowns in that regulatory process are a) NOT the norm (morbidly obese Americans are still a minority) b) often traceable to other emotional issues.

On the other hand, a huge percentage of your ostensibly well-regulated eaters believes their personalities will go on living when their body dies. Food regulation and metabolism has all sorts of feedbacks and is perhaps not the best example, (though I'd say it's a good one: morbid obesity is not the only consequence of gluttony). But abstract concepts dancing about in the neocortex are a different story.

You sneak in many evolutionary "just so" stories. One struck me for the pure inconsistency of your arguments: You said: Homo sapiens sapiens evolved in a time of scarcity (I'm roughly paraphrasing you here) and then proceed to basically say that we're unable to plan for the future. Well, how did our ancestors survive? In my evolutionary "just so" story, they survived by planning for the future in times of scarcity. Just because Americans are unable to plan for the future does not mean that humans as a whole are unable to plan for the future. Consider the possibility that this phenomenon is driven by social cognition, rather than anything inherent in the human brain.

When summarizing the entire mental evolution and energy situation of the human race in a half-hour, one may be forgiven for a few "just so"s. So what? I don't see that you have shown any inconsistency in Nate's arguments here, could you point it out? Indeed, your argument seems to be an "appeal to authority" where you're the authority. The point that Americans may be worse at planning than some other cultures is a reasonable one, but I don't see that Nate has argued otherwise.

Reasoning biases are NOT proof of anything. a) Reasoning biases are not robust and highly representation dependent. IIRC there was a study recently published (I'm talking last 20 years) in which people were asked to make probability judgments based on provided percentages (in one condition) and based on set representations e.g., one in ten people blah blah blah (in the other condition). Subjects in the "set" condition did just fine. Reasoning biases are just as likely a subset of a much broader phenomenon related to specificity effects and corresponding "failure to transfer," which have absolutely nothing to do with our reptilian brain and have everything to do with cognitive efficiency, nothing more.

Say, could you possibly be more sloppy, less rigorous and use more opaque jargon? Something was published in the last 20 years IYRC "blah blah blah"... Clearly you have read something at some point, IYRC, but it isn't coming across in your comments.

I could go on and on.

Dude, for my money, you have.

Please, read outside of your field a little.

Y'know, you have a long way to go in a followup post to establish that you're not high on crack, much less to begin to refute what Nate has outlined. Maybe a keypost?

This was a really enlightening talk, a lot of themes have been put together beautifully. Been following the oildrum for months now. This is my first post and i'd like to thank all the people who've taken the time to contribute and enlighten us on such an important issue.

I would like to ask about the implications of peaking oil production on Africa? So far much research has been done on the consequences to Europe, Australia, North America. What sort of economic/ political scenarios do you see taking place? Many Thanks again.

Interesting food for thought thx. Maybe our relative rather than absolute prosperity will help us during the decline. e.g. 'we've had to give up one of our plasma tv's but, hey, the neighbours have had to give up 2!' Declining slower than those around us becomes the trappings of the nouveaux riche :-)

Or even a war spirit of 'we're all in this together' where ostentatious shows of wealth are despised (it's a bit like that in the UK already).

I've seen the charts several times now and would like to know why the Philipines ranks high on happiness scale when their energy use per capita is so low. Is this due to culture, political organization or is it biological? Has there been any comparative analysis conducted which could explain why this might be the case? Are there steps that we can take as a society to keep our happiness high as we decrease our energy use?

Are there steps that we can take as a society to keep our happiness high as we decrease our energy use?

Yea! Meditate and accept entropy and impermanence!

In all seriousness (not that that wasn't serious in a way, it's just unlikely), I don't think we can answer the question definitively. (Though I'd lean toward culture...)
There's certainly the fact that the people of the Philippines grew up in an energy environment very similar to the one in which they are currently. Us wacky westerners will have to (hopefully slowly?) transition from a life of extreme convenience and relative wealth to making due with barely more than the necessities. That's not going to be easy for many people.

An abrupt transition becomes much more difficult in numerous ways.

The apparent paths to happiness, as I've read in a few books on the subject, that certainly could be wrong and IIRC, are keep yourself busy with something you can enjoy, only compare your self (if ever) to those less fortunate - see how you're doing fine, don't worry about keeping up with the Jones' - or how you could have so much more, and support and help other people.
So be productive. Don't wish for fame and fortune. Enjoy family and community.

I agree with this comment. My daughter visited the Philipines this past spring for three weeks on a high school service project...installing computer labs for schools in San Fernando. When she returned home, she decided to change her college plans since leaving from home for an east coast school would separate her from family and community. She also was inciteful enough to see that any relationships that she developed at a college far from home would be difficult to maintain after graduation.

Thats what the Easterlin study showed as well - that we don't get more satisfaction from pursuit of pecuniary measures but we DO get more satisfaction over time from increased social and community interaction...e.g. friends and family.

Nate's presentation is a great summary of some of the things that make us hominid and even more particularly human - in ways that we often forget.

The challenge is accepting this, understanding parts of lower level cognition, and planning as if it is real and influencing our lives, whether we want or not, is the key.

But alas, delaying gratification esp. in a society of constant sensory bombardment, fairly long time horizon required for thinking and creeping uncertainty is very hard, just as Nate so eloquently put it.

But one must start somewhere regardless of how hard it is. Otherwise one just worries for nothing, or alternatively forgets and does nothing.

Great video - a real keeper. Will be posting this to a lot of my friends.

Another quick comment - thx for the net energy curve. It looks worryingly steep already but what would it look like if you plotted net energy available to net oil consuming nations (ELM) - are we into a cliff-edge type scenario? Every time I start getting more positive about the transition I see something like this and think instead about buying up more tinned food!

I like the discussion on the psychology of denial, delayed rewards and evolution. The peak oil phenomenon has now become a psychological problem, first and foremost, now that the broad outlines of the geological problem are well understood. We need more discussion of this topic and fewer graphs, perhaps.

Plot a course for the rest of your life to be happy. Everything else falls into place.

"Baa, ram, ewe. To your heart be true." Timeless, cross-species advice. While I very much agree with it, perhaps it could be too easily interpreted as "party on". I'm pretty sure that's not what you mean.

I was frustrated by the slides. Someone upthread posted a link to readable versions. Can that link be moved into the top story?

I think your general statements are true, but society isn't really homogeneous, so the problems of "comparative status" etc apply to some people more than to others.

The research institute Sociovision had a closer look to these social patterns and created the graph of Sinus-milieus (very well known at least among marketing professionals). If you click on the map you see the pattern of consumer classes, which have a quite different mentality and behavior. As far as I remember (and somewhat simplifying) the typical consumption-addicted mentality is mostly pronounced towards on the lower left corner, whereas in the upper right corner many people are interested in new ideas, including post-materialistic attitudes and probably include most of the "greens" and "peakists". And Sociovision does see several encouraging trends, which might lead to a more sophisticated and resilient society.

You ended your speech saying that everyone in the audience should change their lifestyle. But this can only be a first step, which probably most of the peak-aware people already are working on.
But the real important challenge will to achieve that these "green" ideas and actions become mainstream.

So far I see three possibilities: Leadership, grassroots movement or crash change.

1. Leadership
There is a good historical analogy to the irish elk you showed on your slides: The gondolas of venice. Originally these were built all sorts of colors, as the Venecian nobility tried to beat each other with an exuberance of pomp and size - just like modern men with their SUVs. But in 1562 the Senate of Venice, led by Gerolamo Priulis brought this unbridled addiction to pomp to a halt: According to a new law only a specific design of slim, black gondolas was allowed on the waters of Venice - such as we know them today.
You can imagine that this radical step, which was certainly extremely "unpopular" among the nobility, needed a really strong leadership. I still hope that one day there will be someone who can trigger the awareness of the masses - like what Al Gore achieved concerning global warming.

2. Grassroot
It is well possible that among the national governments nobody has the strength to tell the "inconvenient truth" of PO - and to push through the necessary measures: Politicians want to be elected. And to get elected telling inconvenient messages is generally less appropriate than telling sweet lies - as long as these lies aren't debunked. This is where a growing grassroot movement might take charge - those crazy guys from the upper right corner of the Sinus milieus slowly encroaching upon the entire society. They may not even change the general direction of politics but also achieve that an owner of SUVs living in a suburb is considered "lame", whereas a member of the "new urban society" riding a bike or driving a smart has a "sexy" image.
You think this is impossible? I'm not so sure. History has several precedences, when such radical 180° turns both in politics as well as in society were achieved by grassroot movements. One example is the vietnam war, which lost more than just its "sex appeal". Or the complete turnaround of societies in former east block countries. I know only a bit about how the movement in the GDR got going and little about the vietnam movement got going. It might be interesting to learn more about the mechanisms behind them.

3. Crash change
There is a third scenario, which I'd call crash change, perhaps a native speaker can find a better wording for it.
This one is not led by humans but driven by nature: Sooner or later it will be impossible to ignore that there is a resource issue, as it is simply there - clearly visible as price tags shining from each petrol station, on food bills etc. To a certain degree this is already happening, but the issue is still rather low on the agenda and there are still people who openly claim that there is no need to worry. Some of these stakeholders will still do so when the oil price is much higher (just like the still existing deniers of climate change)- but from a certain point on this won't be considered "political correct" any more.
In this scenario it is for sure that politics and society will change - because there is no choice: Wasting resources will be simply too expensive. But as there is no time nor money left for increased efficiency and alternative sources in this scenario saving resources means abdication: Less travelling, less comfort, less food - certainly the scenario with the least "sex appeal". This is how the people of New Orleans learned that the laws of nature are not negotiable. Let's strive that the rest of our planet can be spared from this lesson.

Wow. This further strengthens and fleshes out my view that we have watched PO play out on Wall Street along lines that are very sociological and psychological. Small counterpoint: global market centers like Sydney and London, which have longer and more sustained histories with mining and extraction companies, have cultures that were and remain much less obstinate in the face of PO. Your average money manager in London and Sydney has likely been much more exposed to the realities of commodity supply and demand, and the tediously long times it takes to bring on supply. They are also more likely to have a degree in science, or to have been exposed to economic theory that is less cornucopian.

In contrast, because of a generational cycle that I mark as starting with Paul Volker's success against inflation, US financial culture is uniquely vulnerable to misunderstanding our current moment. A 25 year bull market in bonds and other financial assets is precisely what led the street to spend the first half of this decade financing houses and consumption.It was not until early 2006, for example, that the editors of the Wall Street Journal called a meeting with their reporters, and acknowledged that the paper had completely missed the move so far in the decade in Oil and commodities, having ceded the entire story up that point to the FT of London. When a particular culture is oriented in a certain direction, the trance is pervasive and total. Everyone participates. This is a huge cycle that drove everything, and especially the orientation of MBA programs. From the ashes of the last commodity boom, we planted the seeds of a generation fated to be unable to understand the current shift. The Julian Simon generation, if you will.

Thanks. I don't speak very often other than at school -that is only video that exists. Here is the post I wrote on the Origins of Status and Addiction which explores these issues further - at the end is an extended reference list. If you are interested in the particular topic of sexual selection in humans, Professor Geoffrey Miller has been writing in that area for over a decade, in addition to David Buss mega-study. He supposedly has a book coming out "Faking fitness: The evolutionary origins of consumer behavior" which I am anxious to read.

Stuff like this presentation is why I read TOD, I learned a lot today, thanks Nate.

I wonder why there wasn't a single female Elk that liked males without large antlers? Survival of the fittest says just one such female and one such male would likely have saved the species. I think it must have been a catastrophic population decline, I wonder what the ultimate cause was ... climate change?

you can google Irish elk -there are number of theories - of course we will never know for sure but when the Upper Dryas ended, temps went up sharply and changed the vegetation.

But in response to your first question, the theory of runaway sexual selection is the female chooses the male with the largest antlers (or flashiest tail, or fastest sports car, etc.) and the offspring, carries the genes for larger antlers if male and the genes for being 'choosy' for large antlers, if female. Google 'sexual selection..biology'. There are enough books to keep you busy for years (though Schuster and Wade is considered the standard)

When food was scarce being fat was a sign of wealth/success/a desireable mate. Critical point; fat NOT obese!
Moderate degree of fatness is good healthwise, specifically slightly chubby. The fat provides insulation and fuel for when you lack food. If you are merely chubby it has no signifigant effect on aerobic fitness.

Skinny is similar to toned fitness; it really is hard to tell the difference between a fit distance runner and a skinny couch potatoe. Fat is now a sign of poverty (as a first impression only) The rich hire personal trainers. The truly desireable trait is fitness; but just TRY to distinguish between a female marathoner and a lazy skinny woman...it is not easy for me. One last variable of skinny as desireable; a dysfunctional societal obsession with the appearance of youth...trying to look fourteen or sixteen or ?

I don't know why you say "dysfunctional societal obsession with the appearance of youth...trying to look 14 or 16 or ?". That would imply that a 20 year old woman would want to look 14. I don't see it. I see alot of 30+ women want to look like their 20 year old self, but 14???? Youth is a desire in every culture, some are just better accepting of letting it go than others.

the only premium in future prices vs september delivery of futures on the nymex is the cost to store the commodity, which is why peak oil is not reflected in 2016 prices. Think about it - if the price of oil for 2016 delivery is $400, then hoarders see the market will trade at higher prices in 8 years, and so these guys will just buy the barrels now and keep it in a warehouse - but enough hoarders would jump in to make the september 2008 delivery not that much less than the 2016 delivery. This is why all graphs of oil futures roughly match. Another way to think of it: I could purchase oil for september delivery and then resell the barrels for 2016 delivery, and keep them in nebraska until delivery, and so a price diff of $120 and $400 with a cheap storage cost means a ton of profit. But there is no free lunch, esp. not in commodities.

However, many people here may be very surprised to hear that oil options (special contracts for futures) writers have indeed taken peak oil into account - in fact, many of them for 2012 require oil to be above $300 in order to make any profit at all! My broker also found that 2016 options are break-even only on $500 oil.

1) this is really tangential to the speech
2) this misinterprets the mechanics underlying options in general and oil options specifically

a)there IS no storage large enough to arbitrage out the holding costs of oil through 2016 - hedge funds have already bought up all the spare storage space and as a % of total annual oil sales the fraction is puny (I have the numbers somewhere)

b)2012 options are breakeven at a high price of oil NOT because they 'expect' oil to be $300+ but because the implied volatility is so high. One could make the equivalent argument (bearish case for oil) on the 2012 puts. Other than liquidity, there is NO WAY the options markets would differ meaningfully from the futures markets - due to arbitrage. So it is incorrect to say that the options traders 'understand peak oil' while the futures traders do not. (incidentally, the liquidity of both futures and options past early 2009 on the strip is poor) (**Edit - I just checked and the Dec 2012 $200 calls are at $7.5 implying breakeven at $207.5, not $300.)

c)options on crude only are only listed until 2013, so your broker is making the 2016 stuff up, unless it is off balance sheet in which case it is REALLY illiquid.

google oil contango or backwardation - or there are many old posts on this site explaining this dynamic

Nate, thanks for clearing that up. I was just about to write the same thing. Breakeven is used very freely in that post. FYI, options on 2016 DO trade. I know because I'm bidding on them now. The ask is $20 for calls on CLZ16 @ 200. A steal if you ask me. I think NYMEX hasn't updated their dropdown. My broker allows purchase and sale of these options. Still, this isn't relavant. Thanks again.

Nate, great presentation. You mention in your closing comments that "financial capital could be supplanted by built capital, social capital," etc. Are you aware of any papers that look at various societies (and composite cultures) and their capacity to handle dramatic change? It would very difficult to quantify "social capital" as the level of subjectivity in analysis would be almost impossible to avoid but I imagine one could do a fair study of past events if nothing else to bring the question to the fore.

My fear is that the United States, being the most culturally diverse (the giant "melting pot") coupled with its broad emphasis on the individual over the whole, is the least capable of the industrialized nations, from a social capital standpoint, to handle resource depletion. Most neighborhoods in America are ethnically segregated (by choice) and it has been shown that mixed neighborhoods do not really integrate. While an external event like 9/11 can serve as an incredible unifier, resource depletion is likely to bring out the worst sort of "push comes to shove" anarchic tendencies as communities "band together" for resource grabs and power consolidation.

More homogeneous cultures like those of Japan and Iceland might stand the best chance of peacefully adapting to resource depletion.

Yep-that is why the interests of the country as a whole can never be advanced-this setup didn't happen by accident. It is impossible to run a society the size of the USA for the benefit of 1% of the population unless the remaining 99% is splintered.

Hope that in the last year you've gotten wise to the problems with the energy pay back of nuclear power. I realize that you were looking at biomass as the alternative but it would be better to look at things that are getting going now such as wind. There, we are certainly doing better than fossil fuels.

All the Irish elk females wanted was a successful male elk to make strong babies. But the trouble is, each male elk would try and mate with you, even though you want the strongest. They'll all say they're good, but how to choose? You want a sign of fitness you can't fake. So, big strong antlers.

That they became extremely wasteful wasn't an accident - it says "I'm so strong I can have these useless enormous gigantic antlers". Telling the male elk that they should have more sensible antlers because of the waste that will get them in the very long term (and for thousands of years, has gotten them mating rights) is not going to work. Similarly the wasteful consumption of resources in our times - cars with big engines, fancy clothes, a big house, wasteful consumer life.

They all say - how could I afford this if I was poor?

Now, imagine if the Elk had evolved the intelligence to devise a system of credit to allow them to buy better antlers - you could impress the females then pay the bills? That would probably have been a successful strategy too.

Having people face the reality that they are living beyond the planets energy means is like trying to talk an elk down into economy sized horns. They will rightly worry that some other big horned bugger will do it anyway, and get all of the females!

Given a slow selection pressure on them, female elk would have still preferred the bigger horns, but the elk they belonged to would have died and horn sizes would move downwards.

How could have the elk have started a fashion trend of smaller horns? How can females judge which males are best? You'd have to come up with another unfakeable game, but this particular method of judging wasteful allocation of resources to a trophy worked for her mother and grandmothers and so forth up the lines.

Back to humans - what about girls who were conceived in the back of fast cars with loud engines? Their existence proves the signal of gas guzzling V8s is evolutionarily successful - how much advertising airtime will we need to convince them bicyclists are sexy?

To sum up this whole thesis: the USA as a culture is obsessed with energy consumption and expenditure in general as the sex starved USA males are under incredible competition to get the attractive USA females. So what you guys are concluding is that the only way to get an effective powerdown is to flood the USA market with an oversupply of sexy, attractive, willing females, thus drastically lowering the motivation for or need of a means to impress same. Now that you know what needs to be done to save Gaia, how are you going to engineer this solution?

HiredGoon, You maybe appreciate that these things are not decided in the way you describe as conscious reasoning about numbers of offspring. Human males have an irrational, innate, preference for women with long hair (I certainly find them more erotic myself) and unnecessarily large tits, and slender waists. That's because these have historically been associated with sustained health (long hair) and appearing to not be pregnant (the other two). I'd also add the preference for women wearing pink and spotty clothes (historically indicating menstruation, hence fertility).

And then natural selection has favoured women who prefer having long hair, pink / spotty clothes and so on.

Even men who consciously "want" to avoid having children prefer these characteristics. Their innate programming has different plans than their "rational".

As for not finding cycling men sexy - My experience is quite the opposite - women are impressed by (a) physical fitness; (b) courage; (c) resilience; (d) pro-sociality/responsibility; and (e) independence of thought and action. And their brains are sophisticated enough to recognise these in cyclists and lacking in common-or-garden motorists.

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“I'd put my money on solar energy… I hope we don't have to wait til oil and coal run out before we tackle that.”

—Thomas Edison, in conversation with Henry Ford and Harvey Firestone, March 1931